31 March 2007

Greed Is All Right

If James Stewart's Den of Thieves (Simon &
Schuster, 1991) is just half accurate, Wall Street’s mores and culture
in the 1980s bore an amazing resemblance to the Mafia’s. As depicted by
Stewart, Wall Street was a world unto itself greased by the exchange of
favors. Money, power and sex defined status. Providing for one’s family
was the ostensible excuse for any behavior, and only suckers played
without an edge. Wall Street argot, as in “This company is going down”
or “We’ll squeeze the board of directors,” bespoke violence, albeit of
an economic kind. The universe outside was viewed with contempt, and
Securities and Exchange Commission (SEC) lawyers (the cops on the beat)
were fools too stupid to make it on the Street. Whenever the SEC
mounted an investigation, Wall Street prized silence and loyalty above
telling the truth. In practice, though, betrayal to save one’s own skin
was commonplace. Den of Thieves reads like the script from
director Martin Scorsese’s Goodfellas, with investment banker Martin
Siegel in the role played by Ray Liotta.

The great strength
of this book lies in its use of SEC documents and federal court
records, supplemented by interviews, to construct a story valuable,
above all, for its coherence. Readers who closely followed newspaper
accounts of the criminal misdeeds of Dennis Levine, Martin Siegel, Ivan
Boesky and Michael Milken, the four main culprits in Den of Thieves,
will still have their eyes opened by Stewart, a Pulitzer Prize-winning
journalist with a law degree. Even the outstanding coverage of The Wall Street Journal,
where Stewart is front-page editor, is no substitute for a sustained
narrative that weaves together new information with half-forgotten
facts. In particular, the means by which the government lawyers bring
down “the Russian” (Boesky) and then Milken is crucial to understanding
the whole sorry mess. Half the book is devoted to that grinding,
slow-motion chase, most of which has never been reported, and it is the
better half of the book.

Few characters emerge with their
reputations intact, fewer still with their reputations enhanced. Of the
latter, the most prominent is Federal Judge Kimba Wood (a Reagan
appointee, it must be pointed out), who sentenced Milken to ten years
in prison precisely because he committed “only crimes that were
unlikely to be detected.” Wood is to this scandal what John Sirica was
to Watergate, a judge who restored some faith in the system, although
Sirica had to work much harder and longer. Stewart’s other heroes are
the SEC and Justice Department attorneys who persevered, finding
resolve in the knowledge that they were, as one of them put it,
“engaged in the single most important thing we would ever do in our
lives.” Admirable characters outside the government are harder to find.
Perhaps only Harvey Pitt acquitted himself well. Pitt, a former SEC
general counsel who represented, among others, Ivan Boesky, managed to
serve the interests of his clients and Justice at the same time.

That Milken emerges as the most malign individual among large cast of
unsavory characters 1s no surprise. As late as 1986 Boesky seemed to
have that mantle all to himself. In that year he defined the spirit of
the eighties with his “greed is all right” commencement speech at
Berkeley, not uncoincidentally marking Ronald Reagan’s ultimate
triumph over the campus that launched the Free Speech Movement. But
Stewart rightly shows that Boesky, the arbitrageur, paled next to
Milken, the junk bond king. It may have been a symbiotic relationship,
but it was not equal. Boesky did Milken’s bidding, and so the decade
ended with Milken as the embodiment of greed.

I grew up in
Los Angeles at roughly the same time as Milken, and I still find it
hard to comprehend what a cheerleader from Birmingham High School (the
Valley, no less) wrought. Start with Richard Nixon’s character flaws,
add the zealotry and utter shamelessness of Oliver North, and the
result might begin to approach Milken, an insecure, charismatic,
obsessive accountant’s son who aimed to dominate the whole financial
world. At some point Milken apparently decided that no big deal was
going to be done without him, requiring him to seem unstoppable if not
omnipotent. To this end he cheated his clients, his partners, his
subordinates and his firm, Drexel Burnham Lambert. He tried to prevent
publication of a book that dared criticize his junk bond empire. Once
the SEC began to close in, Milken paid what amounted to hush money to
try to keep his staff closemouthed. In all probability he destroyed
evidence.

Finally, in a last-ditch effort to stave off
certain indictment, Milken underwrote an enormous public relations
campaign calculated to neutralize public opinion, if not turn popular
outrage into outright acclaim. Because any Manhattan jury was likely to
include black Jurors, special efforts were made to propagandize the
black community. Fortunately these did not work, although Milken
managed to enlist Jesse Jackson in this cynical exercise, yet another
reminder that Jackson’s ego is larger than his politics.

Milken’s lawyers were a true extension of their client. Edward Bennett
Williams, the attorney hired by Milken immediately after Boesky pleaded
guilty, sought to protect his client from indictment by keeping
everyone at Drexel “inside the tent pissing out” instead of on each
other. At no time did he ever attempt to get the truth from his client,
unlike Harvey Pitt. In effect, it seems, Williams connived to obstruct
justice.

The tactics of Milken’s co-counsel, Arthur Liman,
were even worse. When he became chief counsel to the Congressional
committee investigating the Iran/contra scandal in 1987, Liman said his
respect for the rule of law compelled him to put aside his lucrative
corporate practice in order to perform a public service. But his
defense of Milken suggests he has one set of legal ethics for
government officials and another for wealthy private citizens.

Just as Ollie North and Brendan Sullivan put North’s interrogators
on trial, Liman sought to make Milken’s critics and prosecutors the
defendants. It was Liman who ordered that steps be taken to stop
publication of Connie Bruck’s The Predators’ Ball “either through contacts” at Simon & Schuster “or in court.” It was
Liman who suggested that Milken try his case in public by hiring Linda
Robinson, a P.R. flack who proceeded to try to persuade America that
Mike Milken was a “national treasure” instead of a national disgrace.
After Williams died of cancer, full control of Milken’s defense fell to
Liman, who clung to Williams’s scorched-earth tactics and continued to
indulge Milken’s fantasies of complete innocence. When Drexel chairman
Fred Joseph advocated a settlement with the SEC in a desperate effort
to save the Drexel franchise, Liman accused him of “selling out”
Milken, as if Drexel were an investment bank in Nazi Germany shedding
itself of innocent Jewish partners. “That’s the first step towards
concentration camps,” Liman told Joseph.

Along with his sharply drawn portraits of right- and wrong-doers,
Stewart sheds light on a neglected aspect of the frenzied eighties,
namely, the care and feeding of the business press and other media by
junk bond and takeover artists. But Stewart raises almost as many
questions about the media as he answers. Martin Peretz, editor in chief
of The New Republic, was a big investor in Boesky’s arbitrage
fund. Did that fact have anything to do with the adulatory review of
Boesky’s 1985 book, Merger Mania, that appeared in TNR? (One of
Boesky’s assertions was that he never made any “undue profits.“) And
why is it that none of the major networks, or PBS, ever put together a
serious documentary about buyouts and junk bonds, a phenomenon that
affected hundreds of thousands of jobs, pensions and benefits? Is it
because "60 Minutes" producer Don Hewitt socializes with buyout artists
like Henry Kravis, or because Kravis sits on the board of WNET, the PBS
affiliate in New York?

For all its power and value, Den of Thieves
falls measurably short of the distinction some reviewers would give it:
that it is the definitive book about Wall Street during the eighties.
Stewart’s reportorial skills are considerable, but the book is stingy
when it comes to going beyond a description of who-did-what to an
interpretation of why things happened. The story begs, at many points,
for Stewart to stop and paint the big analytic picture before he
resumes his admittedly compelling narrative. He does so too
infrequently. The underlying reasons for the eighties’ speculative boom
are inadequately discussed in three paragraphs on page eighty-three.
The devolution of deal making over the decade is largely missing, along
with significant nuances in the battles for corporate control. Even the
October stock market crashes of 1987 and 1989 are treated almost as
asides rather than events integral to the story. The sickening
transformation of Wall Street from a collective means of financing the
economy into a free-for-all looting of corporate America is never fully
explained.

A closely related drawback is Stewart’s focus on
criminal activity: insider trading, the “parking” of stocks so as to
conceal true ownership, and manipulation of share prices. This emphasis
is understandable, given Stewart’s reliance on court documents that
resulted in criminal convictions. But Wall Street in the eighties was
not merely about illegality, though there was plenty of that. It was
also about the utter collapse of business ethics, manipulation of the
tax code by Wall Street’s best and brightest, who stole shareholders
blind and then justified epic displays of avarice by claiming to
maximize shareholder value. None of these activities are illegal, but
they constitute more than half the depravity that was Wall Street
during the Reagan years. Den of Thieves replicates, curiously
enough, the self-centered world view of Wall Street. In fact, it seldom
leaves the Street (Milken’s office in Beverly Hills notwithstanding).
In his prologue, Stewart takes note of the big, consequential context,
the corporations fatally crippled by criminal and unethical activity,
the thousands of jobs lost to unserviceable debt, forced bankruptcies
and depleted pension plans. But those consequences are only asserted,
and never shown to be true in the same searing detail Stewart uses to
reveal Boesky’s insider trading. The definitive book would show what
happened to Rexene, or any one of hundreds of companies subjected to
Milken-financed raids or buyouts.

The exception to this
parochialism is Stewart’s occasional reference to Washington, but he
still does not tell enough about this aspect. Never mind the do-nothing
Treasury Department and the cheer-leading by economists at the SEC,
which was firmly in the grip of laissez-faire ideologues for
most of the eighties. The non-response of Congressional Democrats to
Wall Street’s speculative orgy should have been an important component
of Den of Thieves. Stewart never mentions the Alliance for
Capital Access, a lobbying front that Milken organized in 1985 with one
purpose in mind: to beat back any attempt to rescind the tax deduction
for interest on corporate debt. From 1985 through 1990 the alliance
raised and spent $4.9 million lobbying Congress to protect the one
deduction absolutely critical to Milken’s Ponzi scheme. Instead,
Stewart merely tantalizes the reader with isolated facts, such as the
$23,900 in campaign donations from Drexel that helped turn liberal
Senator Timothy Wirth from a critic into a defender of junk bonds.

All these gaps explain why Stewart concludes by proposing the most
limited reforms imaginable, such as a statutory definition of insider
trading (according to Stewart’s own book, Martin Siegel always knew
when he was illegally sharing privileged information despite the
vagueness of current law). The problems are much more fundamental.
Basic issues of corporate governance and accountability need to be
reopened and resolved if the corporate form of organization is going to
benefit society and not just yield unconscionable rewards to a handful
of bankers, lawyers and CEOs.

Now that the eighties bubble has burst and Milken is in jail sans
hairpiece until 1993 or thereabouts, it might seem like this story is
mostly over. But recently Milken reduced Arthur Liman’s role in favor
of that famed lawyer of last resort, Alan Dershowitz. Milken reportedly
was inspired by Dershowitz’s success in the Claus von Bulow case, and
there is speculation that, far from seeking a mere reduction in
Milken’s sentence or defending Milken in $1 billion worth of pending
civil suits, Dershowitz may try to withdraw his client’s guilty plea.
The lawyer of last resort is using the tactic of last resort. Virtually
all the negative characters in the book are Jewish, says Dershowitz,
and gratuitously identified as such. To make his point, Dershowitz took
out a $40,000 full-page ad in The New York Times attacking both Stewart’s book and the person who reviewed it in that paper (occasional Nation
contributor Michael Thomas) as anti-Semitic. Stewart also says a
private detective has been asking friend about his private attitude
toward Jews. It is true that Stewart neglects the sociology of Wall
Street, which would show the outsider status of Jews, not to mention
other minorities. Seen in this context, the criminal behavior of Milken
et al. was a kind of retributive assault on corporate citadels
unfairly closed to them. That is what happens when people of great
ability are treated dishonorably by those in power --they break the
rules. But this lapse is not proof of any anti-Semitism on the part of
Stewart, it’s just a shortcoming of the book.

It may take a
journalist with a novelist’s skills to write the definitive account of
Wall Street during the eighties. Until then, read Stewart’s book.

Postscript: Almost 16 years later, Wall Street is the same.
Only the names have changed--and not all of them at that, viz., Henry
Kravis.